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Getting Through the Tough Times

We’re all aware of the all-important requirement to in effect “put some money away for a rainy day,” but how many of us actually do it? It is indeed important to build up some savings on a personal capacity, but even more so if you’re operating a business.

The major reason why most of us haven’t really paid serious attention to the need to save some money is that of not really having a full understanding of what the exact requirements are. How much is enough, for instance and do you have options beyond stashing the cash away in a savings account?

To answer the question of just how much you need to put away for the tough times, you simply need to do a simulation of exactly what something akin to a “rainy day” would cost you. Again, in one’s personal life what you often find is that when it does indeed rain, it tends to really pour, but even more so if you’re involved with running a business.

So it’s a matter of simulating how deep into your pocket a crisis would dig – a crisis during which literally everything which can go wrong does indeed go wrong. It may appear to be a rather cynical way of looking at it, but trust me, cynicism has never been more necessary.

The same model can be applied to your personal life, but if we bring our focus to the business realm, it can be rather confusing to try and figure out every little detail that could go wrong in the day-to-day operation of your business. Yes, it’s still a very time consuming and energy sapping exercise, but it’ll all be worth it in the end and it’s really not all too complicated.

For your business, any number of things could go wrong based on a number of different factors such as your location, the ownership status of the building you’re operating out of, your internet service provider…the list is long, but it ends somewhere with regards to your specific business, so take the time to work it out.

The next step entails quantifying the costs which would be associated with all of these things going wrong at once. If there was a flood for instance, how much does a contingency plan to keep operating regardless of that flood cost, especially when you consider how long you might have to keep that contingency plan in place?

To put it rather bluntly, the amount of savings you need in order to be prepared for getting through the tough times is roughly equal to a three-month’s supply of cash you’ll need to cover your current monthly operational costs. Of course there are cheaper and in some instances more effective ways of building up this emergency cash pile than a savings account, such as taking out business insurance for instance.

Either way, this takes nothing away from the fact that you need to continuously plan for tough times, particularly in the case of running a business, because tough times could also mean no real profits for periods of up to three months or more. How do you keep operating under such circumstances, in anticipation of some better times ahead?